Gold PriceComments Off on Solutions for Everything, Answers to Nothing

Could one day’s Financial Times be the best £2.50 humanity ever spends…?

WEDNESDAY we picked up an issue of the Financial Times, writes Bill Bonner in his Diary of a Rogue Economist – the so-called pink paper due to its distinctive color.

We wondered how many wrongheaded, stupid, counterproductive, delusional ideas one edition can have.

We were trying to understand how come the entire financial world (with the exception of Germany) seems to be singing from the same off-key, atonal and bizarre hymnbook. All want to cure a debt crisis with more debt.

The FT is part of the problem. It is the choirmaster to the economic elite, singing confidently and loudly the bogus chants that now guide public policy.

Look on practically any financial desk in any time zone anywhere in the world, and you are likely to find a copy. Walk over to the ministry of finance…or to an investment bank…or to a think tank – there’s the salmon-pink newspaper.

Yes, you might also find a copy of the Wall Street Journal or the local financial rag, but it is the FT that has become the true paper of record for the economic world.

Too bad…because it has more bad economic ideas per square inch than a Hillary Clinton speech. It is on the pages of the FT that Larry Summers is allowed to hold forth, with no warning of any sort to alert gullible readers. In the latest of his epistles, he put forth the preposterous claim that more government borrowing to pay for infrastructure would have a 6% return.

He says it would be a “free lunch” because it would not only put people to work and stimulate the economy, but also the return on investment, in terms of GDP growth, would make the project pay for itself…and yield a profit.

Yo, Larry, Earth calling…Have you ever been to New Jersey?

It is hard enough for a private investor, with his own money at stake, to get a 6% return. Imagine when bureaucrats are spending someone else’s money…when decisions must pass through multiple levels of committees and commissions made up of people with no business or investment experience – with no interest in controlling costs or making a profit…and no idea what they are doing.

Imagine, too, that these people are political appointees with strong, and usually hidden, connections to contractors and unions.

What kind of return do you think you would really get? We don’t know, but we’d put a minus sign in front of it.

But the fantasy of borrowing for “public investment” soaks the FT.

It is part of a mythology based on the crackpot Keynesian idea that when growth rates slow you need to stimulate “demand”.

How do you stimulate demand?

You try to get people to take on more debt – even though the slowdown was caused by too much debt.

On page 9 of Wednesday’s FT its chief economics commentator, Martin Wolf (a man who should be roped off with red-and-white tape, like a toxic spill), gives us the standard line on how to increase Europe’s growth rate:

It is not enough for people to decide when they want to buy something and when they have the money to pay for it. Governments…and their august advisers on the FT editorial page…need a “strategy”.

On its front page, the FT reports – with no sign of guffaw or irony – that the US is developing a “digital divide”.

Apparently, people in poor areas are less able to pay $19.99 a month for broadband Internet than people in rich areas. So the poor are less able to go online and check out the restaurant reviews or enjoy the free pornography.

This undermines President Obama’s campaign pledge of giving every American “affordable access to robust broadband.”

The FT hardly needed to mention it. But it believes the US should make a larger investment in broadband infrastructure – paid for with more debt, of course!

Maybe it’s in a part of the Constitution that we haven’t read: the right to broadband. Maybe it’s something they stuck in to replace the rights they took out – such as habeas corpus or privacy.

We don’t know. We only bring it up because it shows how dopey the pink paper – and modern economics – can be.

Quantity can be measured. Quality cannot. Broadband subscriptions can be counted. The effect of access to the internet on poor families is unknown.

Would they be better off if they had another distraction in the house? Would they be happier? Would they be healthier? Would they be purer of heart or more settled in spirit?

Nobody knows. But a serious paper would at least ask.

It might also ask whether more “demand” or more GDP really makes people better off. It might consider how you can get real demand by handing out printing-press money. And it might pause to wonder why Zimbabwe is not now the richest country on earth.

But the FT does none of that.

Over on page 24, columnist John Plender calls corporations on the carpet for having too much money. You’d think corporations could do with their money whatever they damned well pleased.

But not in the central planning dreams of the FT. Corporations should use their resources in ways that the newspaper’s economists deem appropriate. And since the world suffers from a lack of demand, “corporate cash hoarding must end in order to drive recovery.”

But corporations aren’t the only ones at fault. Plender spares no one – except the economists most responsible for the crisis and slowdown.

“At root,” he says of Japan’s slump (which could apply almost anywhere these days), the problem “results from underconsumption.”

Aha! Consumers are not doing their part either.

Summers, Wolf, Plender and the “pink paper” have a solution for everything. Unfortunately, it’s always the same solution and it always doesn’t work.

Gold PriceComments Off on State of Emergency Declared as Protests Erupt in Burkina Faso

Burkina Faso’s president has declared a state of emergency and dissolved the government in the country in the face of violent protests demanding his resignation. As the country is Africa’s fourth-largest gold producer, miners with gold projects in the region are no doubt watching the news unfold.

A regular contributor to Growth Stock Wire, Badiali has experience as a hydrologist, geologist and consultant to the oil industry, and holds a master’s degree in geology from Florida Atlantic University.

Here he tells The Gold Report‘s sister title The Mining Report that cheap oil prices and the economic prosperity they bring can make politicians and investors look smarter than they are. Hence Badiali’s forecast that Hillary Clinton…if elected in 2016…could go become one of America’s most popular presidents. Yes, really.

The Mining Report: You have said that Hillary Clinton could go down in history as one of the best presidents ever. Why?

Matt Badiali: Before we get your readership in an uproar, let me clarify that the oddsmakers say that Hillary Clinton is probably going to take the White House in the next election. Even Berkshire Hathaway CEO Warren Buffet said she is a slam dunk. I’m not personally a huge fan of Hillary Clinton, but I believe whoever the next president is will ride a wave of economic benefits that will cast a rosy glow on the administration.

Her husband benefitted from the same lucky timing. In the 1980s, people had money and felt secure. It wasn’t because of anything Bill Clinton did. He just happened to step onto the train as the economy started humming. Hillary is going to do the same thing. In this case, an abundance of affordable energy will fuel that glow. The fact is things are about to get really good in the United States.

TMR: Are you saying shale oil and gas production can overcome all the other problems in the country?

Matt Badiali: Cheap natural gas is already impacting the economy. In 2008, we were paying $14 per thousand cubic feet. Then, in March 2012, the price bottomed below $2 because we had found so much of it. We quit drilling the shale that only produces dry gas because it wasn’t economic. You can’t really export natural gas without spending billions to reverse the natural gas importing infrastructure that was put in place before the resource became a domestic boom. The result is that natural gas is so cheap that European and Asian manufacturing companies are moving here. Cheap energy trumps cheap labor any day.

The same thing is happening in tight crude oil. We are producing more oil today than we have in decades. We are filling up every tank, reservoir and teacup because we need more pipelines. And it is just getting started. Companies are ramping up production and hiring lots of people. By 2016, the US will have manufacturing, jobs and a healthy export trade. It will be an economic resurgence of epic proportions.

TMR: The economist and The Prize author Daniel Yergin forecasted US oil production of 14 million barrels a day by 2035. What are the implications for that both in terms of infrastructure and price?

Matt Badiali: Let’s start with the infrastructure. The US produces over 8.5 million barrels a day right now; a jump to 14 would be a 65% increase. That would require an additional 5.5 million barrels a day.

To put this in perspective, the growth of oil production from 2005 to today is faster than at any other time in American history, including the oil boom of the 1920s and 1930s. And we’re adding it in bizarre places like North Dakota, places that have never produced large volumes of oil in the past.

North Dakota now produces over 1.1 million barrels a day, but doesn’t have the pipeline capacity to move the oil to the refineries and the people who use it. There also aren’t enough places to store it. The bottlenecks are knocking as much as $10 per barrel off the price to producers and resulting in lots of oil tankers on trains.

And it isn’t just happening in North Dakota. Oil and gas production in Colorado, Ohio, Pennsylvania and even parts of Texas is overwhelming our existing infrastructure. That is why major pipeline and transportation companies have exploded in value. They already have some infrastructure in place and they have the ability to invest in new pipelines.

The problem we are facing in refining is that a few decades ago we thought we were running out of the good stuff, the light sweet crude oil. So refiners invested $100 billion to retool for the heavier, sour crudes from Canada, Venezuela and Mexico. That leaves little capacity for the new sources of high-quality oil being discovered in our backyard. That limited capacity results in lower prices for what should be premium grades.

One solution would be to lift the restriction on crude oil exports that dates back to the 1970s, when we were feeling protectionist. It is illegal for us to export crude oil. And because all the new oil is light sweet crude, the refiners can only use so much. That means the crude oil is piling up.

Peak oil is no longer a problem, but peak storage is. If we could ship the excess overseas, producers would get a fair price for the quality of their products. That would lead them to invest in more discovery. However, if they continue to get less money for their products, investment will slow.

TMR: Is everything on sale, as Rick Rule likes to say?

Matt Badiali: Everything is on sale. But the great thing about oil is it is not like metals. It is cyclical, but it’s critical. If you want your boats to cross oceans, your airplanes to fly, your cars to drive and your military to move, you have to have oil. You don’t have to buy a new ship today, which would take metals. But if you want that sucker to go from point A to point B, you have to have oil. That’s really important. There have been five cycles in oil prices in the last few years.

Oil prices rise and then fall. That’s what we call a cycle. Each cycle impacts both the oil price and the stock prices of oil companies. These cycles are like clockwork. Their periods vary, but it’s been an annual event since 2009. Shale, especially if we can export it, could change all of that.

The rest of the world’s economy stinks. Russia and Europe are flirting with recession. China is a black box, but it is not as robust as we thought it was. Extra supply in the US combined with less demand than expected is leading to temporary low oil prices. But strategically and economically, oil is too important for the price to get too low for too long.

I was recently at a conference in Washington DC where International Energy Agency Executive Director Maria van der Hoeven predicted that without significant investment in the oil fields in the Middle East, we can expect a $15 per barrel increase in the price of oil globally by 2025.

I don’t foresee a lot of people investing in those places right now. A shooting war is not the best place to be invested. I was in Iraq last year and met the Kurds, and they’re wonderful people. This is just a nightmare for them. And for the rest of the world it means a $15 increase in oil.

For investors, the prospect of oil back at $100 per barrel is not the end of the world. With oil prices down 20% from recent highs and the best companies down over 30% in value, it is a buying opportunity. It means the entire oil sector has just gone on sale, including the companies building the infrastructure.

As oil prices climb back to $100, companies will continue to invest in producing more oil. And that will turn Hillary Clinton’s eight-year presidency into an economic wonderland.

TMR: The last time you and I chatted, you explained that different shales have different geology with different implications for cracking it, drilling it and transporting it. Are there parts of the country where it’s cheaper to produce and companies will get higher prices?

Matt Badiali: The producers in the Bakken are paying about twice as much to ship their oil by rail as the ones in the Permian or in Texas are paying to put it in a pipeline. The Eagle Ford is still my favorite quality shale and it is close to existing pipelines and export infrastructure, if that becomes a viable option. There are farmers being transformed into millionaires in Ohio as we speak, thanks to the Utica Shale.

TMR: What about the sands providers? Is that another way to play the service companies?

Matt Badiali: Absolutely. The single most important factor in cracking the shale code is sand. If the pages of a book are the thin layers of rocks in the shale, pumping water is how the producers pop the rock layers apart and sand is the placeholder that props them open despite the enormous pressure from above. Today, for every vertical hole, drillers create long horizontals and divide them into 30+ sections with as much as 1,500 pounds of sand per section. A single pad in the Eagle Ford could anchor four vertical holes with four horizontal legs requiring the equivalent of 200 train car loads of sand.

Investors need to distinguish between companies that provide highly refined sand for oil services and companies that bag sand for school playgrounds. Fracking sand is filtered and graded for consistency to ensure the most oil is recovered. Investors have to be careful about the type of company they are buying.

TMR: Coal still fuels a big chunk of the electricity in the US Can a commodity be politically incorrect and a good investment?

Matt Badiali: Coal has a serious headwind, and it’s not just that it’s politically incorrect. It competes with natural gas as an electrical fuel so you would expect the two commodities would trade for roughly the same price for the amount of electricity they can generate, but they don’t. The Environmental Protection Agency is enacting emission standards that are effectively closing down coal-fired power plants. And because it is baseload power, you can’t easily shut it off and turn it back on; it has to be maintained. That means it doesn’t augment variable power like solar, as well as natural gas, which can be turned on and off like a jet engine turbine. So coal has two strikes against it. It is dirty and it isn’t flexible.

Some coal companies could survive this transition, however. Metallurgical coal (met coal) companies, which produce a clean coal for making steel, have better prospects than steam coal. Along with steam coal, met coal prices are at a six-year low.

Generally, I want to own coal that can be exported to India or China, where they really need it. Japan has replaced a lot of its nuclear power with coal and Germany restarted all the coal-fired power plants it had closed because of carbon emissions goals. We are already seeing deindustrialization there due to high energy prices. Cheap energy sources, including coal, will be embraced. I just don’t know when.

The US Fed just ended quantitative easing. Anyone thinking history or gold worth a look must be a crackpot for worrying…

TIME WAS the Gold Standard simply existed…like rain or snooker tables, writes Adrian Ash at BullionVault.

Zero rates and quantitative easing are the monetary equivalents today. Doing anything else puts a cental bank into the “hall of shame” according to Bloomberg. The Financial Times gasps that today the US Fed’s “grand experiment is drawing to a close…”

Oh yeah? The world hasn’t yet seen the last of US quantitative easing, we think. Not by a long chalk. QE is getting new life after 15 years in Japan, the world’s fourth largest economy, and it has barely begun in the single largest, the Eurozone.

Only China to go, and the QE Standard will be truly global. But financial markets and pricing mechanisms the world over are already through the looking glass. After $3 trillion of US Fed asset purchases, climbing back to the other side will take more than a month’s rest from extra money printing.

The Gold Standard, meantime, now exists only to fill space when financial hacks run out of other silly things to talk about.

Over a week ago, billionaire tech-stock investor and former PayPal boss Peter Thiel appeared on right-wing shock jock Glenn Beck’s TV show. He mumbled something about the value of money…reality…and the virtual world of monetary politics we’ve all lived in since 1971.

Nothing to see or hear in that. Even the laziest gold bug can see US president Nixon’s decision to end the Dollar’s gold link changed nothing and everything all at once. Metaphysical mumblings are the best anyone’s since managed in trying to understand how humanity got beyond itself in that moment.

But Selgin underplayed the task ahead, I fear. QE, zero rates and unlimited money-supply growth are big, important issues. Today’s US Fed meeting proved that once again.

On the other side of the debate however, even the most qualified and serious economist daring to doubt the sanity of printing money to buy up government debt, mortgages, stocks or other nation’s currencies now looks like a “crackpot” to most politicians, financiers and reporters today.

What could possibly go wrong? We must be crazy to bother owning gold as financial insurance, never mind worrying about how money itself…as basic to civilization as the written word…is being bent and remade in the latest central-bank experiments.

WAYNE KAUFMAN is chief market analyst at Phoenix Financial in New York.

Regularly quoted in the media and interviewed on Fox, CNBC and the BBC, Kaufman produces a daily report for Phoenix, is a member of the Market Technicians Association, and has taught level 3 of the MTA’s three-level online course for Chartered Market Technician candidates.

Here Kaufman speaks to Mike Norman on behalf of Hard Assets Investor about how he sees the big picture right now…

Hard Assets Investor: We’ve seen some crazy gyrations in gold, in the Dollar, in oil, even in stocks. Summarize how it looks to you.

Wayne Kaufman: In terms of US equities, we’ve been watching a deterioration of underlying market breadth, that hasn’t shown up, or had not shown up in the major indexes until the last couple of weeks. But for the last three or four months, we’ve been watching small-caps get decimated. And then the midcaps followed. And then the large-caps, S&P 500, had a peak recently. But the breadth was terrible.

And now the stocks have rolled over. It’s to the point where you’ve only got about 18% of S&P 1500 stocks over their own 50-day moving average, less than one in five. About one in three are still over their 200-day moving average. So that underlying deterioration came through and pulled down the majors.

HAI: Now with small stocks weak like that, wouldn’t that suggest general economic weakness, or at least a tipoff to that effect, that we’re seeing basically small, medium-sized businesses not doing very well?

Kaufman: Definitely. You’re right. You’re talking about changes taking place. The question in the mind of investors right now is, we’re seeing the weakness in China, in Europe, in Germany suddenly rolling over. You’ve got the price of oil. It’s all of these things that are turning dramatically. Is this a long-term trend change? Or is this just going to be short term? Is it just typical October stuff, in the case of equities? That’s what we’re going to find out over the next few weeks.

HAI: But is there really a downside, when people know the central banks are going to be there, push comes to shove?

Kaufman: There, at a point, is only going to be so much that the central banks can do. I was recently asked by a news outlet to give my projections for the S&P, and my reasoning. My No. 1 reason for being bullish is central banks around the world will do everything possible to prevent a global recession. Are they really able to do much more? We know they’ll try. Are they going to wait too long before they do? How effective can they be?

HAI: Last time you were here, you were negative on gold. And that play worked out pretty well. How do you see things panning out from this point?

Kaufman: I see short-term, over-sold and over-bearish sentiment. So a bounce is definitely in the cards, especially if there’s some short covering by people who are short the futures. But when I was here last time, I said I couldn’t get bullish unless gold broke $1400 or so. Now that number is a little lower.

HAI: Where is it?

Kaufman: $1300. I need to see $1350 at least, because you do have a potential triple bottom. A lot of people say, “Oh, triple bottom.” It’s a potential triple bottom that doesn’t get confirmed until you break unimportant resistance. Unless we can get above $1350, I’m not going to start thinking about getting bullish, except for oversold, over-bearish bounces.

HAI: We had a guest recently talking about the death of gold. Reminds me of the death of equities back on the infamous 1979 Business Weekcover. What do you make of that?

Kaufman: I agree. That’s why I’m saying I could see a bounce here, because it’s oversold, and it’s over-pessimistic. Levels of pessimism are extreme. And when you see that, that’s a good time to take the other side of that trade. The question is, how much staying power? You’re talking about commodities going down. The Dollar has been strong, which is a little too much bullishness in the Dollar. That certainly can be capped here.

But oil is just amazing. For years, you always said that the Saudis controlled the price of oil. You were 100% right. Because they’re the only country that really has significant excess capacity. Right now, are the Saudis purposely trying to drive the price of oil down, so that they can try and put a cap on fracking and energy exploration and production here in the States?

HAI: The shale guys, the shale producers.

Kaufman: Potentially an amazing tactical war going on between the Saudis and the US, in terms of oil production.

HAI: I saw an example of that back in the ’80s, when I was an oil trader on the floor of this very exchange, when they crashed the price down. That was a message sent to the non-Opec producers, the North Sea guys in particular. So I think you’re absolutely right.

You mentioned the Dollar. That was a surprise to most people, because we had this narrative, for a long time, about money printing, and central banks, and quantitative easing, and hyperinflation and the Fed doing all this. Yet, look at the Dollar.

Kaufman: I don’t want to seem like I’m complimenting you because you’re the host, but you said this a long time ago.

HAI: Don’t hold back…

Kaufman: You said a long time ago, all the inflation guys, that they were wrong, they were going to be wrong. You were 100% right. So it was a big surprise. Now, as a technician, I called the Dollar going up at a point when I saw it giving me buy signals. I don’t do it the intuitive or the economist way. It’s extremely overbought. And it’s extremely over-bullish. It has been taking a pause. I think it’ll continue to pause here. It’s just too many people on that side of the trade at this point.

HAI: We heard comments recently from New York Fed President William Dudley, to the effect that a Dollar that’s too strong might hinder our ability to achieve our goals. Hint, hint, a little bit of code words there…

Kaufman: You’re right. But the problem they have is that the strong Dollar is going to hurt exports, obviously. But you’ve got S&P 500 companies due in the neighborhood of 40% of revenues, 50% of profits overseas. So, whether it’s from the strong Dollar or just because the economies overseas are very weak right now, no matter how you go on that, it’s going to be a problem. And the world economy needs to clear up. We’re not an island unto ourselves; it will affect us. And I think that’s what equities are starting to show.

HAI: Good points. Wayne, always great to have you here. Thanks very much.

AMONG the many things still to be discovered is the effect of QE and ZIRP on the markets and the economy, writes Bill Bonner in his Diary of a Rogue Economist.

We can’t wait to find out.

The Fed has bought nearly $4 trillion of bonds over the last five years. You’re bound to get some kind of reaction to that kind of money.

But what?

Higher stocks? More GDP growth? Higher incomes? More inflation?

Washington was hoping for a little more of everything. But all we see are higher stock and bond prices. And if QE helped prices to go up, they should go back down when QE ends this week.

Unless the Fed changes its mind…

If the Fed makes a clean break with QE, it risks getting blamed for a big crack-up in the stock market. On the other hand, if it announces more QE, it risks creating an even bigger bubble…and getting blamed for that.

Our guess is we’ll get a mealymouthed announcement that leaves investors reassured…but uncertain. The Fed won’t allow a bear market in stocks, but investors won’t know how and when it will intervene next.

Last week, we were thinking about the reaction to the murder in Ottawa of a Canadian soldier who was guarding a war memorial.

There were 598 murders in Canada in 2011 (the most recent year we could find). As far as we know, not one registered the slightest interest in the US. But come a killer with Islam on his mind, and hardly a newspaper or talk show host in the 50 states can avoid comment.

“War in the streets of the West,” was how the Wall Street Journal put it; the newspaper wants a more muscular approach to the Middle East.

Why?

After a quarter of a century…and trillions of Dollars spent…and hundreds of thousands of Dollars lost…America appears to have more enemies in the Muslim world than ever before. Why would anyone want to continue on this barren path? To find out, we follow the money.

Professor Michael Glennon of Tufts University asks the same question: Why such eagerness for war?

People think that our government policies are determined by elected officials who carry out the nation’s will, as expressed at the ballot box. That is not the way it works.

Instead, it doesn’t really matter much what voters want. They get some traction on the emotional and symbolic issues – gay marriage, minimum wage and so forth.

But these issues don’t really matter much to the elites. What policies do matter are those that they can use to shift wealth from the people who earned it to themselves.

Glennon, a former legal counsel to the Senate Foreign Relations Committee, has come to the same conclusion. He says he was curious as to why President Obama would end up with almost precisely the same foreign policies as President George W. Bush.

“It hasn’t been a conscious decision. […] Members of Congress are generalists and need to defer to experts within the national security realm, as elsewhere.

“They are particularly concerned about being caught out on a limb having made a wrong judgment about national security and tend, therefore, to defer to experts, who tend to exaggerate threats. The courts similarly tend to defer to the expertise of the network that defines national security policy.

“The presidency is not a top-down institution, as many people in the public believe, headed by a president who gives orders and causes the bureaucracy to click its heels and salute. National security policy actually bubbles up from within the bureaucracy.

“Many of the more controversial policies, from the mining of Nicaragua’s harbors to the NSA surveillance program, originated within the bureaucracy. John Kerry was not exaggerating when he said that some of those programs are ‘on autopilot’.

“These particular bureaucracies don’t set truck widths or determine railroad freight rates. They make nerve-center security decisions that in a democracy can be irreversible, that can close down the marketplace of ideas, and can result in some very dire consequences.

“I think the American people are deluded…They believe that when they vote for a president or member of Congress or succeed in bringing a case before the courts, that policy is going to change. Now, there are many counter-examples in which these branches do affect policy, as Bagehot predicted there would be. But the larger picture is still true – policy by and large in the national security realm is made by the concealed institutions.”

Calling the Ottawa killing “war” not only belittles the real thing; it misses the point. There is no war on the streets of North America. But there is plenty of fraud and cupidity.

Here is how it works: The US security industry – the Pentagon, its hangers-on, its financiers and its suppliers – stomps around the Middle East, causing death and havoc in the Muslim world.

“Terrorists” naturally want to strike back at what they believe is the source of their sufferings: the US. Sooner or later, one of them is bound to make a go of it.

The typical voter hasn’t got time to analyze and understand the complex motives and confusing storyline behind the event. He sees only the evil deed.

His blood runs hot for protection and retaliation. When the call goes up for more intervention and more security spending, he is behind it all the way.

US oil stocks have soared as shale pushes crude prices down. But gold…?

The UNITED STATES is doing better than it has in years, writes Frank Holmes on his Frank Talk blog at US Global Investors.

Jobs growth is up, unemployment is down, our manufacturing sector carries the rest of the world on its shoulders like a wounded soldier and the World Economic Forum named the US the third-most competitive nation, our highest ranking since before the recession.

As heretical as it sounds, there’s a downside to America’s success, and that’s a stronger Dollar. Although our currency has softened recently, it has put pressure on two commodities that we consider our lifeblood at US Global Investors: gold and oil.

It’s worth noting that we’ve been here before. In October 2011, a similar correction occurred in energy, commodities and resources stocks based on European and Chinese growth fears.

But international economic stimulus measures helped raise market confidence, and many of the companies we now own within these sectors benefited. Between October 2011 and January 2012, Anadarko Petroleum rose 58%; Canadian Natural Resources, 20%; Devon Energy, 15%; Cimarex Energy, 15%; Peyto Exploration & Development, 15%; and Suncor Energy, 10%.

Granted, we face new challenges this year that have caused market jitters – Ebola and ISIS, just to name a couple. But we’re confident that once the Dollar begins to revert back to the mean, a rally in energy and resources stocks might soon follow. Brian Hicks, portfolio manager of our Global Resources Fund (PSPFX), notes that he’s been nibbling on cheap stocks ahead of a potential rally, one that, he hopes, mimics what we saw in late 2011 and early 2012.

A repeat of last year’s abnormally frigid winter, though unpleasant, might help heat up some of the sectors and companies that have underperformed lately.

On the left side of the chart below, you can see 45 years’ worth of data that show fairly subdued fluctuations in gold prices in relation to the Dollar. On the right side, by contrast, you can see that the strong Dollar pushed bullion prices down 6% in September, historically gold’s strongest month. This move is unusual also because gold has had a monthly standard deviation of ±5.5% based on the last 10 years’ worth of data.

Here’s another way of looking at it. On October 3, bullion fell below $1200 to prices we haven’t seen since 2010, but they quickly rebounded to the $1240 range as the Dollar index receded from its peak the same day.

There’s no need to worry just yet. This isn’t 2013, when the metal gave back 28%. And despite the correction, would it surprise you to learn that gold has actually outperformed several of the major stock indices this year?

As for gold stocks, there’s no denying the facts: With few exceptions, they’ve been taken to the woodshed. September was demonstrably cruel. Based on the last five years’ worth of data, the NYSE Arca Gold BUGS Index has had a monthly standard deviation of ±9.4, but last month it plunged 20%. We haven’t seen such a one-month dip since April 2013. This volatility exemplifies why we always advocate for no more than a 10% combined allocation to gold and gold stocks in investor portfolios.

Oil’s slump is a little more complicated to explain.

Since the end of World War II, black gold has been priced in US greenbacks. This means that when our currency fluctuates as dramatically as it has recently, it affects every other nation’s consumption of crude. Oil, then, has become much more expensive lately for the slowing European and Asian markets. Weaker purchasing power equals less overseas oil demand equals even lower prices.

What some people are calling the American energy renaissance has also led to lower oil prices. Spurred by more efficient extraction techniques such as fracking, the US has been producing over 8.5 million barrels a day, the highest domestic production level since 1986.

We’re awash in the stuff, with supply outpacing demand. Whereas the rest of the world has flat-lined in terms of oil production, the US has zoomed to 30-year highs.

In a way, American shale oil has become a victim of its own success.

At the end of next month, members of the Organization of the Petroleum Exporting Countries (OPEC) are scheduled to meet in Vienna. As Brian speculated during our most recent webcast, it would be surprising if we didn’t see another production cut. With Brent oil for November delivery at $83 a barrel – a four-year low – many oil-rich countries, including Iran, Iraq and Venezuela and Saudi Arabia, will have a hard time balancing their books. Venezuela, in fact, has been clamoring for an emergency meeting ahead of November to make a plea for production cuts.

Although not an OPEC member, Russia, once the world’s largest producer of crude, is being squeezed by plunging oil prices on the left, international sanctions on the right. This might prompt President Vladimir Putin to scale back the country’s presence in Ukraine and delay a multibillion-Dollar revamp of its armed forces. When the upgrade was approved in 2011, GDP growth was expected to hold at 6%. But now as a result of the sanctions and dropping oil prices, Russia faces a dismally flat 0.5%.

The current all-in sustaining cost to produce one ounce of gold is hovering between $1000 and $1200. With the price of bullion where it is, many miners can barely break even. Production has been down 10% because it’s become costlier to excavate. As I recently told Kitco News’ Daniela Cambone, we will probably start seeing supply shrinkage in North and South America and Africa.

The same could happen to oil production. Extraction of shale oil here in the US costs companies between $50 and $100 a barrel, with producers able to break even at around $80 to $85. If prices slide even further, drillers might be forced to trim their capital budgets or even shelve new projects.

Michael Levi of the Council on Foreign Relations told NPR’s Audie Cornish that a decrease in drilling could hurt certain commodities:

“[I]f prices fall far enough for long enough, you’ll see a pullback in drilling. And shale drilling uses a lot of manufactured goods – 20% of what people spend on a well is steel, 10% is cement, so less drilling means less manufacturing in those sectors.”

At the same time, Levi places oil prices in a long-term context, reminding listeners that we’ve become accustomed to unusually high prices for the last three years.

“People were starting to believe that this was permanent, and they were wrong,” he said. “So the big news is that volatility is back.”

On this note, be sure to visit our interactive and perennially popular Periodic Table of Commodities, which you can modify to view gold and oil’s performance going back ten years.

OVER the weekend, we were down in Nashville at the Stansberry Conference Series event, along with Ron Paul, Porter Stansberry, Jim Rickards and others, writes Bill Bonner in his Diary of a Rogue Economist.

The question on the table: What’s ahead for the US?

Ron Paul took up the question from a geopolitical angle. He told the crowd that the military-security industry had Congress in its pocket.

As a result, we can expect more borrowing, more spending and more pointless and futile wars. They may be bad for the country and its citizens, says Paul, but they are good for the people who make fighter jets and combat fatigues.

“We’ve been at war in the Middle East for decades,” he said…

“We supported Osama bin Laden against the Soviets in Afghanistan…and the result of that was the creation of al-Qaeda.

“Then we supported Saddam Hussein against Iran. Saddam and bin Laden hated each other. But after 9/11 we attacked Saddam, using a bunch of lies to justify it. We sent over military equipment worth hundreds of billions of Dollars. This equipment is now in the hands of ISIS – another enemy we created…and a far more dangerous one.”

Ron Paul is such a pure-hearted soul. What was a man like him doing in Congress?

It must have been some sort of electoral accident. Good men rarely run for public office. And when they do, it is even rarer for them to win.

Poor Ron is retired from Congress now. And he spends his time trying to “get the word out.” He thinks that if people only realized what was happening they would vote for more responsible leaders and more sensible policies.

Alas, that’s not the way it works. The further the country goes in the wrong direction, the more people there are who have a financial interest in staying on the same road.

We visited Ron in his office on Capitol Hill. He held a breakfast meeting with a small group of congressmen, trying to convince them to vote his way; we don’t remember what was at issue.

It was an uphill battle. Only a few members of Congress attended. And those few worried that their districts would lose money…or that the labor unions wouldn’t like it if they voted no…or that they might not get a plum committee assignment if they bucked their own party leadership. Ron was alone.

Politics favors blowhards, hustlers and shallow opportunists, we concluded. Which makes us wonder how Ron Paul ever got elected to Congress in the first place.

But not only did he get elected…once in Washington, he never sold out. Neither to the right nor the left. He opposed zombies, malingerers and bullies wherever he found them.

Which brings us to the subject of our own presentation to the Nashville crowd. We were following the (QE) money. “St. Louis Fed president James Bullard let the cat out of the bag last week,” we explained.

As Bullard told Bloomberg TV last week:

“I also think that inflation expectations are dropping in the US. And that is something that a central bank cannot abide. We have to make sure that inflation and inflation expectations remain near our target.

“And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December.

“So…continue with QE at a very low level as we have it right now. And then assess our options going forward.”

We didn’t think it would happen so fast. We thought the central bank would wait. We expected a little more hypocrisy…a bit more posturing…a little more phony resistance…a few denials…

…the Fed should have played it cool…coy…elusive…hard to pin down, making investors really sweat before coming to the rescue.

We knew where the Fed would end up…but we didn’t know it would go there so quickly and easily!

Bullard is admitting to a staggering act of vanity and hypocrisy. In the land of free minds and free markets, apparently only the Fed knows what prices equities should fetch.

Henceforth, it will approve all price movements on Wall Street.

To bring you fully into the picture, dear reader, the US central bank has the economy, and the markets, hooked on cheap credit and printing-press money. It has been supplying both on a grand scale for the last five years.

But it had promised to stay away from the playground, beginning this month. Now that the economy is recovering, goes the storyline, the Fed will back away from its emergency measures and allow things to return to normal.

QE ends this month. Higher interest rates are expected next year.

No bubble has ever been created that didn’t have a pin looking for it. And nobody likes it when the two meet up. Last week, it looked as though the Fed’s bubble and Mr. Market’s pin were coming closer. Then quick action by Bullard helped push them apart on Friday.

QE began in November 2008. And zero interest rates began a month later. This has perverted prices for stocks, bonds, houses…and just about every other asset price on the planet. Stocks are worth more than twice what they were at the bottom of the crisis. The average house is worth $60,000 more.

Now QE is ending. And that means a lot less money gushing into financial markets.

Instead of increasing at a 40% rate as it did in 2012, what Richard Duncan calls “excess liquidity” – the difference between what the Fed pumps out via QE and what the government absorbs via borrowing – will go up only 6% this year.

Next year, there will be even less.

With less new money coming from the Fed…and still no real recovery…something’s gotta give. No matter what Fed officials say. And since stocks periodically go down anyway, this seems like as good a time as any.

Switzerland’s gold referendum will force the SNB central bank to buy more than it sold in 2000-2008…

The SWISS GOLD VOTE in November – “Should I be worried?” asks a BullionVault user owning metal in Zurich, writes Adrian Ash at the world-leading physical gold and silver exchange online.

It’s no idle question. Governments do nasty things when they need to buy or keep hold of an asset.

Witness the United States’ compulsory gold purchase of April 1933 for instance…and its ban on hoarding, exporting or trading gold.

Big difference here is that the Swiss public gets to vote on what drives such measures. Thanks to their petition system, the country’s junkies get junk on prescription…while minarets are banned. The changes proposed for 30 November would compel the Swiss National Bank to:

hold all its gold reserves in Switzerland;

raise gold holdings to 20% of the SNB’s total assets;

never sell gold ever again.

This is a Swiss decision, and with the Franc effectively “backed” by gold again if this passes, it’s really not for us British turkeys…earning and holding British Pounds Sterling…to say whether or not a foreign nation should vote for Christmas.

But let’s put my hopeless idealism, and the economic wisdom (or otherwise) of this 1930s-style Gold Standard proposal aside (for that is what it is). Just how desperate might the Swiss authorities become if the vote passes? Put another way, what impact might it have on the supply/demand balance worldwide, and hence prices?

First, the security of gold property held in Zurich or Bern, under the tarmac at Kloten or beneath the Gotthard mountains. Switzerland is a highly open economy, with financial services earning a huge portion of its tax revenues and employing nearly 6% of the working age population. Its banking reputation may have been dented in recent years (and its hard-won bank secrecy laws look set to be crushed by the European Union kowtowing to the US juggernaut). But physical gold storage, alongside refining imported gold bullion for export, continues to be a crucial industry.

By our reckoning, the world’s investors added 1,400 tonnes of gold to private and bank vaults in Switzerland between 2009 and 2013. For non-bank storage of physical property, it remains by far the most popular choice amongst BullionVault users, holding nearly 75% of the current record-high levels of client gold. To the best of our knowledge, no country enjoying such revenue – nor any state enjoying such confidence from foreign wealth – has ever turned it away.

Even during the UK’s balance of payments’ crisis of the 1970s, foreign-owned bullion was allowed to enter and leave freely, sidestepping both VAT sales tax and the exchange controls blocking private British ownership of gold. London of course remains the centre of bullion dealing worldwide, just as Switzerland remains the No.1 choice for investment storage. It’s very hard indeed to see Switzerland attempting any kind of expropriation, compulsory purchase, exchange controls or punitive taxation – most especially of foreign-owned gold.

So, with theft highly unlikely (especially against the popular pro-gold backdrop of a successful referendum), might the SNB rush to buy gold in December after the 30th November vote? Complicating factors start with the referendum process itself. Next month’s question gives no time limit for completing the extra gold buying, nor for repatriation of existing stock from foreign central-bank care. But if voters look harder (and they’ll be urged to think hard by the pro-gold billboard campaign set to start mid-November), then supporting documents set a deadline of 2 years for bringing the current gold home, and 5 years for reaching that 20% target. However, the clock will start running from the date of “acceptance”. But is that acceptance by voters (ie, November 30th) or by parliament and thus the regional cantons (ie, into Swiss law)?

This matters, because Swiss referenda, when approved by the public, can take up to 3 years to become law. So the whole process…if the SNB accepts its fate and doesn’t work with the government to refuse, reject or somehow revoke the Swiss public’s decision…could last up to 8 years.

Expect delays. SNB president Jordan has long spoken against the vote, and vice-chair Danthine did so this month (invoking the threat of deflation and Euro-led recession). Those policymakers are unelected, so Switzerland’s referendum pits popular, if not populist will against the technocrats. But elected politicians also oppose the move (and by a wide margin). Even if passed, in short, the spirit of the new rules will likely be hampered by those people charged with enshrining and then enacting them.

The SNB is also a signatory to the fourth Central Bank Gold Agreement. Running for 5 years from 27 Sept. this year, it obliges the 22 central banks involved to “continue to coordinate their gold transactions so as to avoid market disturbances.” The expected transactions were of course sales (the first CBGA was signed after the UK’s sudden and clumsy gold sales announcement of mid-1999), but this treaty only offers further cover for delaying, going slow, or otherwise tempering the impact of buying.

An object lesson in central-bank recaltricance is the repatriation of Germany’s gold. Wanting some 300 tonnes from New York and 374 from Paris, the Bundesbank’s plan announced in January 2013 is scheduled for completion in 2020. Yet last year, only 5% of that total was shipped, barely one-third the average run rate required. Whatever the reasons, there really isn’t any hurry, not for the central bankers involved at either end of the transfer.

As for retrieving Switzerland’s current overseas gold holdings, we’re given to believe the Bank of England can “dig out” a 20-tonne shipment every two days. So if 20% of the SNB’s metal is still there in London, it could expect to get back the UK holdings inside 1 month. But only if the Bank of England devotes its entire vault staff to that task alone (it holds another 5,000 or so tonnes belonging to other customers besides the UK Treasury), and only if central-banking’s “old world” handshakes and winks are thrown over to appease public opinion.

Again, don’t bet on it. Central bankers have fat brass necks when it comes to defending themselves under cover of mutual independence from national governments and their voting publics. So might history offer some clues to the timing of Swiss buying?

Sucking in foreign money around WWII, and with exchange controls blocking many citizens abroad from buying investment bullion, Switzerland’s own gold reserves grew from 450 tonnes to 1,940 between 1940 and 1960. The sales starting 2000 took eight years to dispose of that much again, this time into a bullish free market (and again, after a public vote). Now something around 220 tonnes per year might be wanted – sizeable quantities to be sure, but in line with recent sources of demand like gold miners buying back the huge forward sales they’d made to insure against lower prices at the turn of the century (dehedging averaged 260 tonnes per year between 2000 and 2012) or the growth rate of new Chinese consumer demand (100 tonnes per year 2004 to 2013).

That extra demand, however, came during a strong bull market in prices. Miner dehedging in particular put a strong bid in the market, helping drive prices higher both mechanically (see the spike of early 2006 for instance) and psychologically (if gold-miner hedging had been bad for investor sentiment, then de-hedging could only be good). Many people now believe that forcing the SNB to hold 20% of its assets as gold will clearly drive market prices higher. Added to the repatriation of all Switzerland’s existing gold reserves…which could catch the cosy world of central banking asleep as Swiss law demands the gold is returned…it is expected to spark a huge squeeze on physical supplies worldwide.

We’re not so sure. Heavy central-bank gold sales during the 1990s are widely held to have pushed gold prices down. But those sales continued until the financial crisis began. By then, gold prices were 3 times higher from their lows of 2001, replaying what happened in the late 1970s, when the US Treasury was a big seller. Relatively heavy purchases – this time by emerging-market states – then coincided with the 2011 peak. But again, those purchases have continued as prices fell steeply.

Yes, back in 1998-2000, the Swiss gold sales discussed and then begun at the turn of this century helped drive the final nails into gold’s coffin-lid. But sandbagging the price, and dismaying dealers (as well as “bitter end” investors enduring the two-decade bear market starting with 1980’s peak at $850 per ounce), those huge sales in fact laid the floor for the 12-year bull market which followed.

Free from central-bank vaults like no time since before the First World War, gold rose and kept rising as private Western households, then Asian consumers, money managers and emerging-market central banks joined the gold miners themselves in buying bullion.

Gold is nearly as rich in irony as it is in politics. If the Swiss pro-gold campaign is trying to gerrymander a price-rise by forcing the SNB to turn buyer, history may yet – we fear – have the last laugh.

But we’ve been watching this show for many years now. We want to see how it turns out.

To bring you up to date, in 1968, the US switched from gold to the kind of money that grows on trees. That’s when President Johnson asked Congress to end the requirement that Dollars be backed by gold.

It allowed a huge increase in credit…and debt. Thirty-seven trillion Dollars in excess credit allowed Americans to live beyond their means for decades. They were spending money that nobody earned or saved.

Year after year – through Democrat and Republican administrations…through good times and bad – debt continued to build up.

And as time went by debt became more important. The US economy…US financial assets…US lifestyles…and the US federal government all came to depend on it. None could survive in its present form if it were forced to live on what was actually earned.

When the US stock market crashed in 1987 Alan Greenspan came to the rescue with more EZ money.

It was a daring and provocative move; never before had the nation’s chief central banker expressed such an interest in stock prices. Previously, Mr.Market was responsible for the stock market; Mr. Central Banker stayed out of his way.

And ever since, central bankers have taken upon themselves the grave and absurd task of guarding speculators’ backs. That’s why the Fed intervened so eagerly in the markets in 2001 and again in 2008.

The Fed may not be able to spot a bubble, but it has no such trouble when it comes to busts. And although it has no interest in pricking a bubble, it treats a bear market as though it were an Ebola epidemic. Whenever there is the slightest hint of an outbreak, it rushes in with hoses and disinfectant.

That’s why we are so interested to see what happens next.

Will the Fed come to its senses and let Mr.Market do his work? Will it allow investment mistakes to be corrected quickly and naturally? Or will it meddle once again…and make them worse?